What Is A Money Market Account Vs. A Savings Account?

Saving money is a key part of maintaining a well-rounded financial profile – but how do you go about storing your extra cash? Among the most common deposit accounts you can choose from are a money market account and a traditional savings account.

Before opening either account, it’s important to understand the similarities and differences – and the potential benefits and drawbacks – between a money market account and a savings account. That way, you’ll know which account type will better address your needs (such as a need to connect the account to a debit card) and help you reach your savings goals.

So how exactly do savings and money market accounts compare? Let’s walk through the details.

What Is A Money Market Account?

A money market account is a type of savings account that’s available at most banks and financial institutions. It typically offers a higher interest rate than a traditional savings account and makes accessing your money easier.

So not only do money market accounts offer you the ability to earn interest on your savings, but you can also write checks, make cash withdrawals (like from an ATM) and use a debit card connected to the account. However, most banks limit how many withdrawals you can make from the account every month.

Money market accounts are also insured by the Federal Deposit Insurance Corporation (FDIC) and the National Credit Union Administration (NCUA) for up to $250,000. This guarantees that the funds in your money market account are protected in the event your bank or credit union fails.

A money market account gives you some of the perks of a checking account while also acting as a savings fund. Keep in mind, though, that it functions as a savings account first and isn’t ideal for everyday spending purposes.

Pros And Cons Of Money Market Accounts

Let’s dive into some of the benefits and drawbacks of using a money market account to save money.

Pros

• Access to money: Money market accounts make it easier than savings accounts to access your funds. With a money market account, you can make ATM withdrawals, write checks, pay bills and use a connected debit card.
• Ability to earn interest: Money market accounts are interest-bearing, which means you can earn interest on the funds you save in your account.
• FDIC- and NCUA-insured: Money market accounts are insured by the FDIC (if your account is at a bank) and the NCUA (if it’s at a credit union) for up to $250,000.

Cons

• Withdrawal limitations: Some banks limit the number of monthly withdrawals you can make from a money market account. You’re typically held to six withdrawals, and you may incur a fee if you surpass this limit.
• Minimum deposit and/or balance requirements: Before you can open your money market account, your bank or credit union may require a minimum deposit. This amount can vary depending on your financial institution. You might also be required to maintain a minimum balance in the account.
• Potential fees: Possible bank fees you may want to consider before opening a money market account include excessive transaction fees, overdraft fees and monthly maintenance fees.

What Is A Savings Account?

A savings account is another type of account where you can safely set aside your money. Like a money market account, savings accounts earn interest and are protected by the FDIC and NCUA for up to $250,000. You can open a savings account at your area bank, a credit union or another financial institution.

Traditional savings accounts place more limits on accessibility to your funds than money market accounts. For example, you can’t write checks or use a debit card with your savings account.

However, you can usually take money from your savings account at an ATM. You also won’t face any limitations on the number of deposits you can make into the account every month.

People often set up automatic deposits through their job, so a certain amount of money is taken from every paycheck and automatically goes into the savings account. This can be an especially helpful technique for saving money, because you don’t even have to think about it.

While savings accounts have a few more restrictions than money market accounts, their structure can benefit those who have trouble saving money. The limited access to funds, for instance, makes the account more difficult to tap into, but it can help you grow your savings more steadily over time.

Pros And Cons Of Savings Accounts

Savings accounts come with their share of pros and cons, and here are a few of them.

Pros

• Ability to earn interest: You can earn interest on the deposits you make into your savings account.
• ATM access: If you need to take money out of your savings account in a pinch, you can typically do so at an ATM.
• FDIC- and NCUA-insured: The FDIC and NCUA will insure your deposits up to $250,000.

Cons

• Limited access to funds: Unlike with a money market account, you typically can’t pay bills, write checks or use a debit card with your savings account.
• Withdrawal limitations: The withdrawal limit for savings accounts at most banks and credit unions is six withdrawals per month. If you exceed this limit, you’ll likely pay a fee.
• Potential fees: Similar to money market accounts, savings accounts come with the potential for various charges. These charges might result from actions such as exceeding the withdrawal limit or not maintaining the minimum balance requirement. 

What’s The Difference Between A Money Market Account Vs. A Savings Account?

How do a money market account and a savings account differ exactly? Here’s a head-to-head comparison.

How To Choose Between A Savings Vs. Money Market Account

If you’re looking to open a savings fund, how do you decide between a money market account and a traditional savings account? It may depend on your specific savings goals and how far you are in your savings journey.

Determine Your Savings Goals

If you’re just starting to put money into an emergency fund or saving for a major investment like a sizable down payment on a car or home, you might be best served by a regular savings account. Since you typically can’t pay bills, write checks or use a debit card with your savings account, you won’t be as tempted to tap into your funds for everyday spending, and this will allow your savings to grow without disruption.

In contrast, let’s say you’re saving to pay off a medical bill or lower your student loan debt. A money market account may be an ideal option because it lets you write checks and pay bills right from the account. Plus, it’s separate from your checking or other savings account and therefore offers a dedicated space for paying off bills and meeting other specific savings goals.

Compare Interest Rates

If earning as much money as possible from interest is a priority for you, it’s important to consider this when thinking about a money market account and a traditional savings account. That’s because money market accounts typically have higher interest rates than regular savings accounts.

Be sure to shop around and compare rates from local banks, credit unions and other financial institutions – like online banks – to find an interest rate that works for you.

Choose One Account – Or Both

Before choosing a money market account or a savings account, weigh the benefits and downsides of the two options. Of course, opening one of each account type can also be beneficial – especially if you want the structure of a traditional savings account and the flexibility of a money market account. Just don’t forget that you’ll likely need to meet the minimum balance requirements for maintaining both accounts.

Whether you decide to open a traditional savings account, a money market account or both, you’re making an effort to save money. Saving not only helps prepare you for the unexpected, but it can help you achieve financial goals like reducing your overall debt or becoming a homeowner.

Money Market Account Vs. Savings Account FAQs

Do you still have questions about savings and money market accounts? If so, you might find the answer below.

Can I have both a money market account and a savings account?

Yes, it’s possible to open and manage both a money market account and a traditional savings account. Keep in mind that you’ll have to meet the minimum deposit and balance requirements for both account types, so you’ll need to have the necessary funds at the ready. 

What’s the difference between a high-yield savings vs. a money market account?

A high-yield savings account has all of the features of a traditional savings account, except it earns much more in interest – typically even more than a money market account.

High-yield savings accounts have a higher annual percentage yield (APY), which is a figure that tells you how much money you’ll earn in interest on the deposits you made into your savings account over a year.

But, like a regular savings account, a high-yield savings account differs from a money market account in that it can be less accessible (in terms of you not being able to pay bills directly or use a linked debit card).

What are the interest rates for savings and money market accounts?

The interest rates for money market accounts and savings accounts can depend on the bank, credit union or financial institution where you’re opening the account. Money market accounts tend to earn higher rates, or have a higher APY, than savings accounts.

However, this isn’t always the case, especially when factoring in high-yield savings accounts that have a higher APY than traditional savings accounts. 

How is a certificate of deposit (CD) different from a money market and a savings account?

A certificate of deposit (CD) is a type of savings fund that usually has more restrictions than savings accounts and money market accounts. When opening a CD, you agree to the amount of money you have to deposit into the account, and you also agree to the term length – the amount of time your money has to sit in the account before it matures and is available for withdrawal (without incurring an early withdrawal penalty).

While CDs offer higher interest rates than savings accounts and money market accounts, you’d be wise to consider potential fees and whether your time and effort are worth the overall investment.

The Bottom Line

Money market and savings accounts are both deposit accounts that can help you stay on track toward achieving your savings goals. While both accounts earn interest, are FDIC- and NCUA-protected and have monthly withdrawal limits, a money market account provides a little more flexibility than a regular savings account.

However, the structure that comes with a traditional savings fund can be especially helpful for those who have trouble saving money. Regardless of the differences between a money market account and a standard savings account, opening either account type or both is a great first step on your journey to saving more money.

If you’re looking for other ways to manage your financial profile – like tracking your spending, budgeting, and automating your savings – create a Rocket Money℠ account or download our mobile app today.